Every Family's Business Blog

Long Odds That Family Is Best Suited to Lead Your Business

It was on the 18th green that a friend who owns a successful executive search firm answered a question about family business leadership that had challenged me from the very first day I sat down to write Every Family’s Business. Finally the penny dropped.

As he stared at his improbable 60-foot putt he opined that his chances were about as good as filling a CEO position in only a week. His comment got me thinking about how difficult it must be to find the very best talent for the most important position
in a firm – the CEO.

Picking up the conversation after he completed his painful third putt, I asked him how many candidates he would interview for a CEO position. His response surprised me. He explained that his staff would typically review more than 1,000 resumes,
creating a shortlist of 100. A fresh set of eyes would then whittle that list down to 25 and subsequent telephone interviews would narrow the field further to 10 to 20 candidates selected for face-to-face interviews.

When I think about a process that starts with more than 1,000 candidates in a non-family business and compare that with a family with, say, four children, often with only the eldest male destined (ordained) for the corner office, the math seems a little lopsided.

You don’t have to be an expert in probability theory or regression analysis to discern that non-family businesses have the best chance of finding the very best talent. One only need look at the hyper-growth in the number of family business
institutes and consultants obsessing over the grooming of talent to understand the magnitude of the problem, if not the futility of trying to hire the CEO exclusively from within the family.

The Family Still Needs to Oversee the Professionals

When the management gene pool in a family is shallow, you’d think that the obvious solution would be for the controlling shareholder to sell the business and protect family wealth to fund his or her long, expensive retirement and the financial future of the heirs. Instead, it has become fashionable these days for well-intentioned consultants to pander to the founder’s lust for legacy and to recommend that the family hire professional managers, thereby creating space and time for junior to grow into the position.

The juniors I meet in my audiences – who are often in their 40s, 50s, 60s and even 70s – tell me their hired-gun CEOs are there to stay – permanently.

The fatal flaw with this plan lies in the question of who will manage the hired gun. Thrusting the succeeding generation into positions of oversight when they have, or more precisely because they have, failed to demonstrate success in the leadership of the firm has got to be one of the most dangerous threats to a family’s wealth.

When a family has concentrated its wealth in one stock – the family business – you can see how high the stakes become. And just like a 3-putt, there can be no joy in placing children in positions of leadership and oversight for which they are ill
suited.

Leadership succession planning is often confused with ownership succession planning – whether a leader is hired from within or from outside the family, the risk to wealth does not abate. The concentration of family wealth in one business
remains a clear and present danger.

As a trusted advisor, how would you caution a family business client about their leadership choices, especially when it’s obvious that when the odds of landing the very best CEO are 1 in 1,000 with a proper search, the likelihood of finding
that “one” when the search is limited to just the family is about the same as hitting a hole in one.